Answer: B. increase in debt
Step-by-step explanation:
If a local government experiences a loss in revenue, they might seek alternative funding methods to support their spending.
The most likely method for that would be debt. Local governments can issue debt securities such as municipal bonds which people can buy. These bonds are attractive because they are considered tax-free (no federal taxes on them).
Some local governments end up taking on more debt than they can service however and sometimes end up bankrupt an in need of a bailout.